How to Prevent Check Fraud (2024)

With credit card and digital payments on the rise, it may seem checks are a relic from the past. However, banks still process roughly 11.2 billion checks annually, according to a 2022 Federal Reserve Payments study.1And according to a 2023 Association for Financial Professionals survey, checks are the payment method most vulnerable to fraud —with 63% of respondents reporting check fraud activity in their businesses.2

If your business uses checks, preventing fraud is very important. The more knowledge you have the better prepared you’ll be.

Understand how check fraud works.

Check fraud occurs when someone illegally obtains money with paper or digital checks. It can happen in severalways:

• Check alteration. Thieves steal a legitimate, signed check and alter the payee and/or amount.They cash the check,and funds are gone from your account before you realize the check didn'treachits intended recipient.


• Check counterfeiting. Criminals steal basic account information and use it to create doctored business checks. Withinhours, they can produce hundreds of realistic-looking checks and clean out your checking account.


• Check forging. Fraudsters might also take a legitimate blank check and fill it out, faking the signature of an authorized user on the account.

No matter how it happens, check fraud can have significant financial and legal ramifications on your business. Depending on the type of fraud, your bank may not be able to reimburse you, and they may impose fees for bounced checks and overdrafts. Another problem might be an inability to pay service providers who could charge late fees or halt services.

The bank could also freeze or close your accounts, and the government might bring charges against you if it thinks you knowingly used fraudulent checks.

Protect your business from check fraud.

If your business falls victim to check fraud, you'll not only lose money, but you'll also lose time and productivity to closing accounts, issuing stop payments on outstanding checks, and reissuing payments. Here are six ways to avoid losing money to altered, forged, and counterfeit checks.

1. Implement strong internal controls.

   • Keep reserve supplies of checks, statementsand other documentation in a secured and locked facility. Limit the number of employees allowed access to these documents,and train responsible staff never to leave blank checks or bank statements unattended.If you use a signature stamp, implement proper controls to ensure the stamp is not readily available for just anyone in the office to use.
   
   
   • Deface and keep voided checks to ensure they don't fall into the wrong hands.If you want to shred voided checks, ask your accountant first. Some accounting firms prefer that you retain voided checks until after the annual financial statement audit is completed.
   
   
   • Delegate accounts payable responsibilities to multiple people.For instance, the person who issues checks shouldn't also signthemand reconcile the bank account. Also, authorized check signers shouldn't have access to blank checks or the ability to enter transactions into the accounting system.Segregation of duties makes it more difficult for employees to tamper with checks and payments.

2. Use Positive Pay systems.

   
   Possibly the best strategy for protecting company funds is to use positive pay, which is available through the Treasury Management department of most banks. With this service, you send an issue file of the checks to your bank before releasing checks to payees. The bank then compares checks received each day to that issue file and singles out unmatched items for your review. Positive pay is an incredibly valuable tool in helping to prevent check fraud.

3. Promptly reconcile accounts.

   
   Early check fraud detection tends to limit loss exposure, so balance accounts monthly to identify discrepancies. The reconciliation should also includereviewingthe bank statement and check images to ensure:
   • Vendors are recognized.
   • Expenditures are related to company business.
   • Signatures are from authorized employees.
   • Endorsem*nts are appropriate.

4. Provide fraud prevention training.

   
   Your employees will work with checks often, and they can be your first line of defense against fraud —but only if they know what to look for. Conduct regular fraud prevention training and awareness campaigns that test team members’ fraud knowledge.

   Remind employees to follow best practices for check writing:

   • Use the entire name of the companywhen writing or printing checks.For example, if the payee is the Internal Revenue Service, don't abbreviate it to "IRS."
   
   
   • Use both numbers and words to indicate the amount on the check, and spell it out completely.For instance, instead of writing "$1,482.78," you'd write "one thousand four hundred eighty-two dollars and 78/100." This stylemakes it harder for fraudsters to tamper with the amount.
   
   
   • Fill in all the available space on every box and line.If your entry doesn't take up the full box or line, draw a line to the end of the space to prevent criminals from making alterations, such as adding an extra zero oran alternative payee. Filling out the check properly helps to ensure it is endorsed and cashed correctly.

5. Identify check fraud warning signs.

   
   You may see some signs of check fraud, especially if it happens repeatedly. These indicators often pop up in regular reconciliations:
   • Unusual amounts or odd recipients.
   • Missing check numbers and checks in non-sequential order.
   • Handwriting or signature discrepancies.
   • Checks that don’t clear.
   If you notice any of these suspicious activities, act immediately to minimize the consequences of business checkfraud.

6. Use security features and technology to prevent check fraud.

   
   Many banks and other reputable businesses offer technology to help prevent business check fraud.
   • Security features make it harder to counterfeit, forge or alter checks.These include watermarks, which are tough to duplicate and reactive paper and ink, whichalert the bank that a check has been tampered with.Some checks printed by online retailers don't include these security features and may be rejected even if the account holder legitimately bought them.
   
   
   • Check verification services compare the information on the check against other sources.These services confirm that the check's routing number, account number and payer match an existing database. They can also identify payers that belong to a list of known bad check writers.
   
   
   • Mobile deposit security features can add reliability to digitally deposited checks.Reputable banks should offer mobile deposits with top-tier security features like user authentication, image validation, fraud monitoring, notification options and an audit trail.
   
   
   • Encryption and authentication add security.Encryption and authentication keep digital information from reaching the wrong hands.

     All banks and financial institutions don’t offer the same features, so ensure your provider has what you need to prevent check fraud.

7. Promptly report and respond to check fraud.

   
   If you find any signs of check fraud, act quickly. Contact your bank or financial institution, which may freeze your accounts or block withdrawals to prevent further fraud. Since fraudulent checks can clear quickly, an immediate response is critical to minimize losses and improve the chances of apprehending the criminal.

   File a police report. You can also report fake checks received by mail to the U.S. Postal Inspection Service and report counterfeit checks to the Federal Trade Commission.

   Once you've notified the relevant parties, work with your bank to recover the losses. Depending on how the fraud occurred, they may be able to restore the funds to your account.

Vigilance, education and check fraud detection are all necessary to protect your business.

Want to learn more about how to prevent check fraud?Call 1-888-SYNOVUS (1-888-796-6887) or stop by one of our local branches.